CSX Operating Income Up 8% in 2022

CSX said this week that for 2022, its operating income was $6 billion an increase of 8 percent compared with 2021,

This included $144 million in gains from what management described as “property sales recognized from the 2021 agreement with the Commonwealth of Virginia.”

Full-year 2021 operating income included $349 million in gains from this same transaction, CSX said in a news release.

Net earnings for 2022 were $4.17 billion, or $1.95 per share, compared to $3.78 billion, or $1.68 per share, in 2021. Revenue reached $14.9 billion for 2022, increasing 19 percent compared with 2021.

The operating ratio was 59.5 percent while diluted earnings per share were $1.95, an increase of 16 percent from $1.68 for the full year 2021.

During the fourth quarter of 2022, CSX posted operating income of $1.46 billion compared to $1.37 billion in the same period of 2021.

Net earnings were $1.02 billion, or $0.49 per share, compared to $934 million, or $0.42 per share in the same period of 2021.

Other fourth quarter highlights included revenue of $3.73 billion, a 9 percent year-over-year, increase that officials said was driven by “higher fuel surcharge, pricing gains, and an increase in storage and other revenues.”

Severe winter weather in late December modestly reduced volumes and revenue for the quarter.

The diluted earnings per share of $0.49 increased 17 percent from $0.42 for the fourth quarter of 2021.

During an investors call on Wednesday, CSX executives said the strong fourth earnings occurred despite signs of an economic downtown.

CSX management expected to gain traffic volume this year thanks to ongoing service improvements.

CEO Joseph Hinrichs said service metrics continued to show improvement through the fourth quarter after starting a clear upward trend in the early fall.

“As we anticipated, our hiring successes have allowed us to deliver better customer service that will allow us to capture more business with more volume over time,” Hinrichs said.

He noted that this has meant on-time performance has reached pre-COVID-19 pandemic levels. For the quarter, intermodal trip plan compliance was 94 percent, while merchandise traffic reached 77 percent, a 20-point improvement compared to the third quarter of 2022.

During the earnings call, CSX management said it was unable to meet shipper demand in 2022 due to service problems related to crew shortages.

CSX executives said merchandise and coal volume continues to grow, which they expect will enable the Jacksonville-based Class 1 railroad to achieve faster business growth than the economy this year.

Hinrichs said CSX is still not meeting the demand that it has to move carload freight.

However, intermodal traffic is expected to decline due to a decline in import activity as retailers work down high inventories they amassed earlier.

CSX management declined to release earnings projections for 2023, citing economic uncertainty. Management also declined to set an operating-ratio goal.

Chief Operating Officer Jamie Boychuk said operations should continue to improve as additional conductors complete training.

CSX is still hiring conductors due to attrition and a low retention rate for new conductors.

“We’re looking at continuing to build our numbers up so we can get to a point where we can cover vacation time and make sure that our employees get time off,” Boychuk said. Consequently, CSX management said it won’t furlough train crews if traffic volume slows.

CSX plans to $2.13 billion on capital projects this year, up from $1.79 billion in 2022.

CN Set Financial Records in 3rd Quarter

Canadian National this week released its third quarter financial results showing record revenue, operating income, and adjusted earnings per share.

Quarterly operating income was up 44 percent to $1.9 billion, revenue rose 26 percent to $4.5 billion, and earnings per share posted a 40 percent gain.

The earnings per share were adjusted for one-time items related to CN’s failed bid to acquire Kansas City Southern.

The operating ratio gained .8 points to an adjusted 57.2 percent. All comparisons are to the third quarter of 2021.

CN is projecting earnings per share to grow around 25 percent, up from its previous forecast of 15 percent to 20 percent.

During an earnings call with investors, CN Chief Operating Officer Rob Reilly said on-time train originations were 87 percent, a 12 percent increase compared with the same quarter of 2021.

Although more trains arrived on schedule during the quarter, CN did not disclose its on-time arrival performance.

Traffic was up 3 percent in the quarter when measured by carloads and containers, or 5 percent based on revenue ton-miles, the preferred metric of Canadian railroads.

NS Sets Quarterly Income Records

Norfolk Southern on Wednesday reported setting records in operating revenue and income from railway operations in the second quarter of this year.

The carrier said operating revenue was $3.3 billion, an increase of 16 percent compared with the same period in 2021. That was a quarterly record.

The increase from the same quarter of a year earlier was due to a 20 percent increase in revenue per unit.

Income from railway operations was $1.3 billion, up 9 percent compared with the second quarter of 2021. That was a record for a single quarter, NS officials said in a news release.

Net income for the quarter was $819 million, about the same as a year ago, and diluted earnings per share of $3.45 were a 5 percent increase.

Railway operating expenses rose 21 percent to $2 billion. NS attributed that to higher fuel prices, lower property sales and increased costs from inflation and service issues

The operating ratio in the second quarter was 60.9 percent compared to 58.3 percent a year ago.

In a statement, NS CEO Alan Shaw said the Atlanta-based carrier had seen improvements in service.

“In the second quarter we stabilized service levels, expanded our pipeline of conductor trainees, and launched the next evolution of our operating plan, TOP | SPG, with our signature no surprises approach,” Shaw said during an earnings call. “Service is not yet where we want it to be, but I am encouraged by our progress.”

Freight volume during the second quarter was down 3 percent. Merchandise traffic fell 1 percent, while intermodal and coal were each down 4 percent.

Compared to the first quarter of 2022, though, average train speed and terminal dwell times were worse

NS Chief Operating Officer Cindy Sanborn tried to put a positive spin on that by saying “we are really encouraged by the improvements we are seeing here in July.”

She said so far in July, train speeds are up 6 percent and dwell times are down 3 percent.

Officials said crew shortages limited the number of trains NS could operate and those that ran were longer, heavier and more fuel efficient.

Sanborn said NS has been able to add new conductors at a rate that exceeds the attrition of existing workers.

NS now has 7,190 qualified train and engine workers, an increase of 224 over the second quarter average. There were 988 conductors in training during the second quarter.

Management expects 12 percent or better revenue growth for the year and projects that the operating ratio will increase a half point to one point.

CN 1st Quarter Revenue up 5%

Canadian National saw its first quarter 2022 revenue rise 5 percent to CA$3.7 billion.

The Montreal-based railroad said adjusted diluted earnings per share were CA$1.32, up 7 percent, compared with first-quarter results in 2021.

Operating income was CA$1.2 billion, down 8 percent, and adjusted operating income of CA$1.2 billion, was up 4 percent.

CN officials said net income was CA$918 million, down from CA$976 million a year ago.

CEO Tracy Robinson in a statement said CN showed resilience in the first quarter in the face of severe winter weather conditions and supply chain disruptions “to deliver solid results.”

CN reported diluted EPS of CA$1.31, down 4 percent. The company posted an operating ratio — defined as operating expenses as a percentage of revenue — of 66.9 percent, an increase of 4.4 points, and adjusted operating ratio of 66.6 percent, an increase of 0.3 points.

The velocity of the system during the quarter, which it also describes as car miles per day, fell by by 12 percent. Fuel efficiency remained flat at 0.910 U.S. gallons of locomotive fuel consumed per 1,000 gross ton miles.

The 5 percent revenue increase reflected strong demand despite reduced revenue ton miles that resulted from a significantly smaller Canadian grain crop, CN officials said.

CN attributed the revenue increase mainly to higher applicable fuel surcharge rates, freight rate increases, higher Canadian export volumes of coal via West Coast ports and higher export volumes of U.S. grain.

Revenue was partly offset by significantly lower export volumes of Canadian grain and lower international container traffic volumes via the ports of Vancouver and Prince Rupert.

Operating expenses for the quarter climbed 12 percent to CA$2.481 million, mainly due to higher fuel costs as well as the recovery of a loss on assets held for sale recorded in Q1 2021.

Due to challenging operating conditions in the quarter as well as worldwide economic uncertainty, CN now expects to deliver a 15 percent to 20 percent adjusted diluted EPS growth, compared to its Jan. 25 target of 20 percent. The company is now targeting an Operating ratio below 60 percent for 2022, compared to its Jan. 25 target of about 57 percent.

CSX Revenue up 24% in Third Quarter

CSX said Wednesday that during the third quarter of 2021 it had revenue of $3.29 billion, an increase of 24 percent compared with the same period in 2020.

The railroad said it posted a third quarter increase of 3 percent in volume. Coal traffic increased 16 percent while intermodal was up 4 percent.

Merchandise traffic fell 2 percent, which CSX officials attributed largely to a 26 percent plunge in automotive traffic.

Auto production in North America has slowed in recent months due to computer chip shortages.

CSX said net earnings for the quarter were $928 million (or $0.43 per share), a gain of 32 percent compared with the same quarter in 2020 ($736 million or $0.32 per share).

Operating income rose 26 percent to $1.44 billion. The operating ratio was 56.4 percent compared with 56.9 percent in 2020. 

“We are committed to helping our customers overcome current supply chain constraints and will continue to take action in order to keep our network fluid and design new solutions that enable the delivery of critical goods to millions of Americans,” CSX CEO James M. Foote said during an earnings announcement.

Officials said CSX is increasing overflow capacity at 13 container yards including in Cleveland, Cincinnati, Detroit, Indianapolis and Louisville. The program is designed to create additional storage and capacity.

They said this would free truck capacity and reduce port terminal congestion.

Since July, CSX said it has increasing hiring of train and engine operating personnel by 300 percent.

The carrier has created incentive programs to increase existing employee availability and hired additional workers at intermodal terminals to maintain fluidity.

During the earnings announcement, CSX said it expects double-digit revenue growth and plans to spend on capital programs between $1.7 billion to $1.8 billion.

More information is available at https://investors.csx.com/overview/default.aspx

CN Says It Has Recovered from Pandemic Downtown

Canadian National said this week that its posted gains in second-quarter earnings and traffic, with nearly every traffic category growing in volume.

CN managers during an earning call said the results reflected a recovery from the COVID-19 pandemic-induced downtown.

Operating income skyrocketed by 76 percent, to $1.38 billion, as revenue grew 12 percent, to $3.6 billion.

Adjusted for the impact of one-time items, earnings per share increased 16 percent, to $1.46. The operating ratio was 61.6 percent, down from 75.5 percent a year ago but up 1.2 points when last year’s second quarter is adjusted for the impact of one-time items.

On a carload basis, overall volume was up 14 percent. It was up by 13 percent when measured by revenue ton-miles, the preferred metric of Canadian railroads.

The strongest traffic growth occurred in industrial products, intermodal, and propane traffic.

“Our results reflect broad-based trends and forward momentum across all of our business, and also the enduring power of our vast and diversified CN network,” CEO J.J. Ruest said.

CN said its terminal dwell and car miles per day improved, while average train speed was down 2 percent, to 19.5 mph.

The Montreal-based carrier set a quarterly record for fuel efficiency and posted a record low employee personal injury rate. The train accident rate also declined.

CN continues to say that its outlook for the remainder of the year will be high single-digit volume growth and double-digit growth in earnings per share.

CSX Optimistic About Traffic Growth

In taking a closer look at the financial performance of CSX in the first quarter of 2021, it becomes apparent that profits and revenue fell because declines in merchandise and coal traffic overwhelmed intermodal growth.

Nonetheless, during a conference call on Tuesday, company executives expressed optimism that traffic will grow overall this year due to a recovering economy shaking off the effects of the COVID-19 pandemic.

“We entered the year projecting volume growth in excess of GDP and still expect to achieve this target,” CEO James Foote said.

“We will continue to attract demand throughout the year, and based on the combination of the strengthening economic outlook and our focus on converting additional volumes off the highway, we now expect to achieve double-digit full year revenue growth.”

Quarterly operating income fell 7 percent to $1.1 billion while revenue declined 1 percent to $2.81 billion. Earnings per share slid 7 percent to 93 cents.

The operating ratio crept up by 2.2 points to 60.9 percent as expenses rose 2 percent.

CSX executives attributed the latter to the effects of employee COVID-19 infections, harsh winter weather, and a fuel surcharge lag.

Overall volume was up 1 percent for the quarter with intermodal traffic growing 10 percent on the strength of an increase in imports at East Coast ports.

Yet merchandise traffic fell 6 percent, largely driven by a 16 percent decline in automotive traffic and an 8 percent decline in chemicals traffic.

A global shortage of computer chips has hamstrung auto production in North American. The chips are placed in new vehicles.

Declines in chemical traffic were prompted by falling crude oil and frac sand shipments.

Coal traffic was down 5 percent, which CSX attributed to fewer exports.

Foote said going forward CSX is focused on improving its train velocity performance, noting that the pandemic and winter weather adversely affected crew availability.

Train velocity was down 11 percent while terminal dwell time was up 30 percent.

On-time performance, based on trip-plan compliance, fell for both intermodal and carload traffic.

Figures released by the company showed 85 percent of intermodal shipments arrived on time, down from 96 percent a year ago.

Merchandise carloads fulfilled their trip plans 67 percent of the time, down from 81 percent a year ago.

CSX operated a record 101 trains per day with distributed power and continued its trend of operating more freight on fewer but longer trains.

During the first quarter train length was up 13 percent and employment down 7 percent due to reduced need for train crews.

CSX Net Earnings Down in 4th Quarter

CSX reported this week that it had fourth quarter 2020 net earnings of $760 million or 99 cents per share, compared with $771 million or 99 cents per share in the same quarter in 2019.

For the last quarter of 2020, net income included a $48 million charge or 5 cents per share after taxes that was related to debt retirement.

Revenue during the quarter decreased 2 percent compared with the previous year to $2.83 billion.

In a news release CSX said intermodal growth was more than offset by lower fuel surcharge revenue and declines in coal traffic.

Expenses fell 7 percent in a year-over-year comparison to $1.61 billion, driven by fuel expenses and efficiency gains.

Operating income rose 5 percent to $1.22 billion from $1.15 billion compared with the fourth quarter of 2019.

CSX reported a fourth quarter operating ratio of 57 percent, which official said was a fourth quarter record.

In the fourth quarter of 2019 the operating ratio, which measures expenses as a percentage of revenue, was 60 percent.

CSX management expects traffic volume in 2021 to outpace gross domestic product growth, with merchandise volume growth exceeding industrial production.

Management expects intermodal volume to grown faster than merchandise and coal traffic to show some improvement over its 2020 levels.

The carrier is expected capital expenditures of $1.7 billion to $1.8 billion this year.

Falling Traffic to Highlight Reports

Ahead of third quarter financial reports being issued by the big six Class I railroads, Wall Street analysts are releasing their projections of what those reports will say.

The analysts project earnings will fall an average of 8 percent at the six publicly traded Class I systems.

Continued declines in traffic will highlight many reports with carload traffic for the industry having falling  9 percent on average during the third quarter.

However, intermodal traffic is on a growth spurt, rising 1 percent on average.

Coal traffic continues to be dismal with Class 1 railroads losing an average of a quarter of their coal volume.

CSX is expected to show the smallest overall quarterly traffic decline.

Overall traffic at CSX is expected to be down 3.8 percent, but its intermodal traffic has risen by a 6 percent.

Earnings at CSX are expected to be down 14.8 percent when it issues its report on Oct. 22.

Canadian National’s earnings are expected to plunge by 13 percent compared with the third quarter of 2019.

Norfolk Southern is expected to report on Oct. 28 a 4.8 percent fall in earnings.

Class 1 3rd Quarter Financial Reports Are Due to be Released This Month; Improvements Expected

North America’s Class 1 railroads will begin issuing their third quarter financial reports later this month and one Wall Street firm has already begun adjusting its expectations of what those reports will show.

In an article posted on the website of Railway Age magazine, Cowen & Company said it now expects the railroads to report freight volume lossess when compared to third quarter 2019 figures, but those numbers are expected to be an improvement over what was reported in the second quarter of this year.

During the second quarter of 2020, Class 1 railroads reported a 20 percent freight volume decline when compared with the same period in 2019.

Cowen expects carload volumes to check in at a 13.5 percent decline over 2019 while intermodal volume is expected to be up 2 percent over last year.

In a note to investors, Cowen analysts noted that despite losing substantial levels of freight traffic this year due to a COVID-19 pandemic-induced economic downturn, the practice of precision scheduled railroading with its emphasis on cost cutting has enabled some Class 1 railroads to post some impressive operating ratio figures of below 65 percent.

The operating ratio reflects what percentage of revenue is spent on operating expenses.

Only Norfolk Southern had an OR above 65 percent. NS reported its OR in the second quarter was 70.7 percent.

NS expected to report an OR of 62.5 percent in the third quarter due to aggressive cost reduction efforts.

Cowen said that it remains to be seen if Class 1 railroads will be able to continue to restrain their expenses in future quarters and to what extent.